Hunter Medical Research Institute scientist Adam Collison who ran the study called it an "amazing finding".
"Ultimately, it means that kids will grow up without asthma who would have had it," Dr Collison said.
The breath test measured levels of nitric oxide, a marker of lung inflammation.
In the study, half the participants were prescribed medication doses based on how the women assessed their own symptoms.
The other half kept track of how they felt, but they were also assessed more precisely using the breath test.
Scientist do not know exactly why, but by tweaking the mother's medication according to the breath test findings, they halved the incidence of asthma in the babies.
"In the babies born to the women following asthma guidelines alone, 40 per cent of children developed asthma," Dr Collison said.
"In babies whose mothers had the breath test, only 20 per cent of the children had asthma."
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President of the Thoracic Society of Australia and New Zealand Peter Gibson said few interventions can prevent asthma in high risk children.
"Here, we show that adjusting asthma treatment in the mother using a breath test can prevent asthma in the child," professor Gibson said.
Using the breath test means the mothers were more likely to receive medication earlier and more often.
"So we're correctly identifying the mums who really will benefit from the medication better using that breath test," Dr Collison said.
Julie McLeod took part in the study six years ago in the hope of not passing on her moderate asthma to her baby.
She did regular breath tests during her pregnancy and her doctor increased her medication doses to clear her airways.
Her son Zen, who is now six years old, is asthma free.
"To be able to do such a simple test to prevent asthma in a child is such a relief for families," she said.
Chairwoman of the Lung Foundation Christine Jenkins said respiratory health during pregnancy was the new frontier of asthma research.
"Over time this study could be very important. If we can influence events in the mother's life by measuring their asthma inflammation, controlling it more effectively, it's very promising that we could potentially reduce the likelihood of children having asthma episodes in early life," she said.
Test can help other lung conditions
Scientists tweaked the mother's medication based on the breath test.
Dr Collison said if the levels of nitric oxide were higher, their dose of inhaled corticosteroids were increased.
"If the nitric oxide was deemed to be high, that would mean that the inhaled corticosteriods that those mums were taking for their asthma were stepped up to the next level, and if it was low, those inhaler steroids were stepped back down," he said.
The reason the incidence of asthma was reduced in the babies was probably due to better asthma control in the mothers.
"We know that those medications were given earlier and to more mums, and so we're correctly identifying the mums who really will benefit from the medication better using that breath test," Dr Collison said.
Researchers found babies born to mothers who had the breath test had fewer cases of frequent wheeze and recurrent lung infections.
Dr Jenkins recommends that women with asthma who are pregnant or considering starting a family should speak to their doctor about how to manage their illness.
"You might not have this breath test, but you have to know for sure you're being carefully monitored, that you take your preventative medication because it can make a big difference to the attacks you have but also more importantly, it could also reduce the likelihood that your baby is going to have asthma," she said.